June 2019: Time for Modi’s ‘Make in India’ and the US-China cold war?

Prime Minister Modi has won a giant mandate in the recent May 2019 elections held in India. The people of India have retained their faith and belief in the man who made history by winning more seats as compared to last time.

The expectations have risen and what will ‘Modi 2.0’ going to offer is to be seen by India and the world. PM Modi has played a vital role in India’s growing influence in the global community; however, what is to be followed will define India in years to come.

There is a new world order and the cold war between US and China is already changing the landscape of how business and trade will be dealt with.

The Question is How much will PM Modi leverage ‘Make in India’?

The new reforms and policies such as labor laws, privatization moves, and creation of land banks for new industrial development will decide the future course of India, its business community and the people of India at large. In a country where jobs and agriculture distress still loom large, further reforms will be the order of the day.

About a fifth of U.S. companies in China are considering moving some or all of their production out of China to deal with the trade tensions, and a third are delaying or canceling investment decisions, according to a survey of 240 firms in the market by American business groups.

The immediate effect of US-led trade wars has been an increase in commodity price volatility across the sectors. As the Iran turmoil led to energy price volatility, it added to the existing cocktail of commodity price volatility.

Prices of aluminum have plunged over 30% from their highest levels in April 2018. Similarly, lead prices have sunk 34% on persistent worries of the impact of US-China trade war and the sinking Chinese auto demand. On the other hand, prices of the yellow metal, a favored safe haven asset in times of uncertainties, rose to $1,307/oz in May 2019 from a low of $1,176/oz in August 2018.

As Sino-US tensions are leading to a reduction in Chinese imports and both nations are looking at alternatives for their exports and imports. India is emerging as a candidate for such substitutions. China’s share in total US trade dropped to 15.7% in 2018 from 16.4% in 2017. Simultaneously, total trade between India and the US increased to $87.5 billion in 2018 from $74.3 billion in 2017, raising India’s share in total US trade to 2.1% in 2018 from 1.9% in the previous year.

Meanwhile, China has turned to India for meeting its demand for cotton. Following the US-China trade war, India’s cotton textile exports to China surged to 69% between April 2018 and February 2019, to $1.55 billion, compared to the same period the previous year.

At the same time, India needs to diversify the trade basket and continue exploring new markets such as Latin America and Africa to expand overseas shipments. One reason India’s external sector could weather the global economic storm of the last decade was India’s diversified trade partners and absence of concentration, a policy that needs to be continued even now.

This includes the ability to ramp up manufacturing with high efficiency and lean supply chains, competitive goods produced with well-managed price risks that can assist Indian industry to sustain the trade momentum. Only through such sustained productivity increase can India aspire to access the lucrative yet challenging markets that beckon her.

Hopes are already being raised that some industries or supply chains may relocate to India, especially if the country continues improving ‘ease of doing business’ and focuses on ‘Make in India’.

The world and India are awaiting Modi 2.0 Strategy to put India’s economy in the high growth trajectory and the supply chain it can offer at the global stage.

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